A new reading on inflation poses another challenge to investors’ expectations of a Federal Reserve rate cut in March.Thank you for reading this post, don't forget to subscribe!
A report on Thursday showed that consumer prices rose more than expected in December as the consumer price index (CPI) rose 3.4% from a year earlier, more than the 3.1% increase seen the previous month. Is.
When removing volatile food and energy categories, “core” inflation fell to an annual rate of 3.9% from 4.0% the previous month. Economists surveyed by Bloomberg had expected core inflation of 3.8%.
The numbers could complicate the task facing Fed officials, who had predicted three interest rate cuts in 2024 without saying when they might happen. Investors are expecting six cuts from March this year.
“Today’s CPI report suggests the Fed’s initial rate cut may be later than the market expects,” said Quincy Crosby, chief global strategist at LPL Financial.
Several Fed officials offered their views following Thursday’s report. Cleveland Fed President Loretta Mester told Bloomberg TV in an interview that March is probably too early for a rate cut and that the CPI report shows the central bank still needs to bring inflation down further.
Richmond Fed President Tom Barkin said he was still looking for conviction that inflation is on track to reach the Fed’s 2% target, while Chicago Fed President Austin Goolsby said he needed more information before the rate cut would begin. Need to see more data.
Federal Reserve Board Chairman Jerome Powell. (Reuters/Kevin Lamarck) (Reuters/Reuters)
Indeed, inflation continues to moderate following the central bank’s most aggressive campaign to hold down prices since the 1980s. Core inflation has fallen to 3.9% from 5.6% early last year.
The Fed last raised rates in July to its highest level in 22 years.
Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans and credit cards
Other Fed officials have also recently put the brakes on rate expectations. New York Fed President John Williams said on Wednesday that he sees a cut only happening when the Fed is confident that inflation is consistently returning to its 2% target – reiterating a view he expressed in December.
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“I expect that we will have to maintain a restrictive policy stance for some time to fully achieve our goals,” he said in a speech.
But he saw “significant progress” in a key measure of inflation known as “core services inflation,” and said shelter inflation is slowing as rent growth for newly signed leases returns to pre-pandemic levels. But she has returned.
Thursday’s CPI report showed that housing shortfalls, the inflation measure for December, increased by 3.4%, while shelters expanded at a slower pace of 6.2% compared with 6.5% in November.
Within core inflation, rental prices remained high. The rental index and owners’ equivalent rent each increased by 0.5% on a monthly basis for the third consecutive month. Owners’ equivalent rent is the hypothetical rent that a homeowner would pay for the same house.
Fed Governor Michelle Bowman and Atlanta Fed President Raphael Bostic also urged caution in their public comments earlier this week, saying they believed rates would remain at current levels for some time. Keeping inflation could return to the central bank’s target.
“Inflationary pressures, although generally subsiding, remain well above expectations as the so-called ‘last mile’ requires more time to reach the end goal,” LPL Financial’s Crosby said.
Investors – and some other market observers – remain confident of a quick rate cut after Thursday’s inflation data. Wall Street is still pricing in a 61% chance that the Fed will cut rates in March.
“I don’t think delaying the cuts is enough,” Stephen Juno, U.S. economist at Bank of America, told Yahoo Finance Live.
“We’re looking for the March cut to start the cutting cycle. That kind of keeps the door open, it certainly doesn’t close the door.”
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